Chasing the Bottom

Chasing the Bottom

Lately I have spent a lot of time thinking about how many sales organizations sell price and why they do so. Here are a few of those observations.

  1. A big box retailer sells at the unconditional lowest prices. To do so, they require that all of their suppliers sell to them at the supplier’s absolute lowest price—even if that wasn’t their supplier’s choice as to how to compete in their marketplace.
     

    The big box retailer is really making their profit by putting the margin pressure on their suppliers—that is their real value proposition to their customers. It’s still a free country, and the supplier companies freely entered into these agreements (more power to them).

    But having entered into these agreements and the accompanying margin pressure, the suppliers have now selected the same pricing strategy as their retailer client, and they now look for ways to capture margin from their own suppliers.

  2. Capturing margin from your suppliers isn’t an appropriate strategy for service industries businesses where value cannot be—or should not be—captured from down line suppliers. In service industry businesses, or businesses that choose a customer intimacy strategy, chasing the bottom and selling price results in a lack of the profit necessary to invest in creating the value their clients expect—and need.
     

    When you sell customer intimacy, when you sell real business results and real value creation, you profit from the value you create, not the margins you make from your suppliers.

  3. Chasing the bottom and selling price has led to greater client churn because the lack of profit has led to a lack of the necessary investment in getting results (I don’t have scientific evidence or surveys to prove this, but I have plenty of experience that bears this point out—and I’ll bet you do to).

    Not getting your clients the results that they need and expect is a surefire way to lose clients. Because companies that have accepted too low prices can’t invest in getting results, some of their clients leave them and choose new suppliers that promise to achieve better results at an even lower price. And closer to the bottom we get.

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    Who Is to Blame

    When it comes to chasing the bottom, there is plenty of blame to go around. Certainly poor salesmanship shares in this blame, especially when salespeople can’t move the deciding factors from price to cost. But salespeople alone aren’t to blame.

    Company leaders who chase revenue at any cost—even the cost of destroying their strategy—are to blame. Market share goals that are out of line with the realities of the marketplace put companies—and their salespeople on the slippery slope to chasing the bottom.

  5. At some point, one of your competitors will be willing to offer a price that you simply cannot match. At some point, you reach the bottom, and there is nothing more to give, no gains to be made. It is always better to be a far smaller, serious value-creating business than a larger, unprofitable business. Unless your strategy is lowest price, you don’t need to chase the bottom.
  6.  

  7. At some point, you have to start creating real value and start chasing the top.

Questions

Are you selling price? If so, is it because it is your company’s strategy?

What impact does selling price on all of the decisions you make as a business? Do lower–or too low–margins impact the way you run your business?

How do you compete and win when you have competitors that will easily beat your price? What does this take in the way of sales skills?


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Comments

comments

  • Jay Hedley

    Good article anthony. Selling on price is part of the old paradigm of sales. Part of push selling. Price (money) is an exchange, and so the sales person selling on price is saying I don’t place much value on the organisation, the product or myself.

    The new paradigm is about relationship. About facilitating. About serving. That often means you give people what they need, not necessarily what they want.

    Jay

    http://www.thecoachingroom.com.au

    • Anonymous

      Thanks for the comments, Jay! I have a future post on your point about what a salesperson believes about themselves and their company (unfortunately based on a true story).

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  • http://twitter.com/StartUpNowUS Jim Graham

    While it is true that the Big Box retailer is putting margin pressure – which might be shared in a ‘fair’ world – on the supplier, it is also true that the ‘absolute lowest price’ is either set by or accepted as a price at which it is willing to sell by that supplier.
    That is, while it may seem to the supplier that it has no choice but to play the ‘unconditional low price’ game on behalf of its big box retailer, it does not. The supplier could decline the contract.
    Perhaps more suppliers should decline the contract, and leave the bottom dollar to the bottom feeders that provide low quality goods at the lowest price. Perhaps consumers need to pay a fair price for the quality and materials the consumer demands.

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